Calculator Use
This commercial real estate loan calculator is a specialized tool designed for investors, developers, and business owners. Unlike residential mortgages, commercial loans often feature a discrepancy between the amortization period and the loan term. This creates a "balloon payment" at the end of the term, which this calculator specifically accounts for.
By entering your loan specifics, you can quickly estimate monthly cash flow requirements and the final lump sum due at maturity. This is essential for evaluating the feasibility of office buildings, retail centers, industrial warehouses, or multifamily apartment complexes.
- Loan Amount
- The total principal balance you intend to borrow for the commercial property.
- Annual Interest Rate
- The nominal yearly interest rate charged by the commercial lender.
- Amortization Period
- The number of years used to calculate the monthly payment amount (typically 20, 25, or 30 years).
- Loan Term / Balloon
- The actual length of the loan before the remaining balance must be paid in full (typically 5, 7, or 10 years).
How It Works
When you utilize a commercial real estate loan calculator, the math involves two distinct phases. First, we calculate the monthly debt service using the standard annuity formula based on the longer amortization schedule. Second, we calculate the remaining principal balance at the point where the actual loan term expires.
Payment = P * [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- P = Principal Loan Amount
- i = Monthly Interest Rate (Annual Rate / 12)
- n = Total number of months in the Amortization period
The balloon payment is calculated by finding the future value of the remaining principal after the Term (k) months have passed. This represents the amount the borrower must refinance or pay off at the end of the loan's life.
Calculation Example
Scenario: An investor is purchasing a small retail strip mall for $1,500,000. They obtain a commercial loan for $1,000,000 at a 7% interest rate, with a 25-year amortization and a 10-year balloon term.
Step-by-step solution:
- Loan Principal: $1,000,000
- Monthly Rate: 7% / 12 = 0.005833
- Amortization Months: 25 * 12 = 300
- Monthly Payment: $1,000,000 * [0.005833(1.005833)^300] / [(1.005833)^300 - 1] = $7,067.79
- Balloon Payment: After 120 months (10 years), the remaining balance is $791,372.45
Common Questions
What is a Balloon Payment?
A balloon payment is a large, lump-sum payment due at the end of a commercial loan term. Because commercial lenders often want to limit their long-term interest rate risk, they may set a 10-year term even though the payments are calculated as if the loan lasts 25 years. At the end of that 10th year, the "balloon" matures and must be paid.
What is DSCR in Commercial Lending?
Debt Service Coverage Ratio (DSCR) is the ratio of Net Operating Income (NOI) to the annual debt service. Lenders use this to ensure the property generates enough income to cover the loan payments. Most commercial lenders require a DSCR of 1.20x to 1.35x.
How are commercial rates different from residential?
Commercial rates are generally higher than residential rates because the risk is perceived to be higher. They are often tied to the Prime Rate or Treasury yields plus a "spread" or margin added by the bank based on the borrower's credit and property type.